UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM-10QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 2001
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period N/A to N/A
Commission File number: 0-24974
DiaSys Corporation
(Exact name of small business issuer as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
06-1339248
(I.R.S. Employer ID #)
81 West Main Street, Waterbury, CT 06702
(Address of principal executive offices)
203-755-5083
(Issuer's Telephone number including area code)
49 Leavenworth Street, Waterbury, CT 06702
(Former name, address and/or fiscal year if changed from last report)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirement for the past 90 days: Yes XX No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court: Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of April 30, 2001, the Company had 6,847,999 common shares outstanding.
DiaSys Corporation
PART I
FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
DIASYS CORPORATION & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS March 31, 2001 June 30, 2000
(Unaudited) (Audited)
CURRENT ASSETS:
Cash and equivalents $1,785,146 $2,415,256
Accounts receivable, less allowance
For doubtful accounts of $80,000 837,780 426,267
Finance receivables, net 134,909 118,597
Inventories 491,581 314,309
Prepaid expenses and other current assets 132,692 112,604
Total Current Assets $3,382,108 $3,387,033
EQUIPMENT, FURNITURE AND FIXTURES, LESS
ACCUMULATED DEPRECIATION 311,796 88,032
OTHER ASSETS:
Computer software,
less accumulated amortization 15,083 27,500
Patents, less accumulated amortization 2,675,542 43,687
Deferred acquisition and offering costs 9,669 13,395
Long-term finance receivables, net 161,477 146,978
Total Assets $6,555,675 $3,706,625
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses 230,860 115,161
Due to Bank 6,308 -
Total Current Liabilities 237,168 115,161
COMMITMENTS:
Long-term portion of hire contracts (U. K.) 40,701 -
Total Liabilities $ 277,869 $115,161
STOCKHOLDERS' EQUITY:
Preferred stock $.001 par value: Authorized
100,000 shares, 1,460 shares issued at March
31,2001 and 2000 shares issued at June 30, 2000 2 2
Common stock $.001 par value: Authorized
99,900,000 shares, issued 6,847,999 at March 31,
2001 and 6,274,768 issued at June 30, 2000 6,848 6,275
Additional paid-in-capital 15,249,618 11,657,434
Accumulated deficit (8,978,662) (8,072,247)
Total Stockholders' Equity $6,277,806 $3,591,464
Total Liabilities and Stockholders' Equity $6,555,675 $3,706,625
See accompanying notes to the consolidated financial
statements.
DIASYS CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Nine Months Three Months
Ended March 31 Ended March 31
2001 2000 2001 2000
NET SALES $ 1,391,169 $ 762,215 $ 432,126 $234,236
COST OF GOODS SOLD 515,835 208,591 162,754 79,361
GROSS PROFIT 875,334 553,624 269,372 154,875
Gross Profit 62.9% 72.6% 62.3% 66.1%
OPERATING EXPENSES:
Selling 695,059 519,261 277,462 159,620
General and administrative 795,755 395,966 341,716 194,564
Research and development 324,896 237,756 121,034 73,418
Total Operating Expenses 1,815,710 1,152,983 740,212 427,602
LOSS FROM OPERATIONS (940,376) (599,359) (470,840) (272,727)
INTEREST INCOME 71,206 16,813 18,023 875
NET LOSS BEFORE TAXES (869,170) (582,546) (452,817) (271,852)
TAXES 37,245 0 0 0
NET LOSS ($906,415) ($582,546) ($452,817) ($271,852)
WEIGHTED AVERAGE OF
COMMON SHARES
OUTSTANDING 6,481,839 6,062,780 6,833,766 6,062,780
BASIC AND DILUTED LOSS
PER COMMON SHARE ($.14) ($0.10) ($0.07) ($0.04)
See accompanying notes to consolidated financial statements.
DIASYS CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
Common Stock Preferred Stock Paid-in- Accumulated
Shares Par Value Shares Par Value Capital Deficit
BALANCE,JUNE 30,2000 6,274,768 $6,275 2,000 $2 $11,657,434 $(8,072,247)
YEAR ENDED JUNE 30, 2001
Exercise of preferred
stock warrants to
purchase 5,476 shares
of common stock 5,476 5 -- -- (5) --
Exercise of preferred
stock warrants to
purchase 5,400 shares
of common stock 5,400 5 -- -- (5) --
Conversion of
Underwriter's Warrants 60,000 60 251,940
Sales of preferred stock,
net of offering costs 1,000 1 899,130
Conversion of Preferred
Stock to Common 41,350 41 (200) (41)
Conversion of Preferred
Stock to Common 20,780 21 (100) (21)
Exercise of 3,500 options 3,500 4 9,840
Conversion of Preferred
Stock to Common 20,780 21 (100) (21)
Conversion of Preferred
Stock to Common 118,814 119 (1,140) (1) (118)
Actual Shares to be
Issued for the Acquisition
of Intersep, LTD 297,131 297 2,431,485
Net Loss (906,415)
BALANCE MARCH 31,2001 6,847,999 6,848 1,460 2 $ 15,249,618 $(8,978,662)
See accompanying notes to consolidated
financial statements
DIASYS CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended, March 31,
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(906,415) $(582,546)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Amortization of patents and software 36,211 11,000
Depreciation of equipment,
furniture and fixtures 45,293 18,000
Changes in operating assets and liabilities:
Accounts receivable (411,513) (284,498)
Inventories (177,272) 2,052
Prepaid expenses and other
current assets (20,088) (19,131)
Accounts payable and accrued expenses 122,007 46,317
Net cash flows from operating activities (1,311,777) (808,806)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment,
furniture and fixtures (269,057) (15,908)
Increase in finance receivables (30,812) (47,622)
Costs of patents and costs of
computer software 276,133 (12,949)
Purchase of Intersep, LTD. (500,000) 0
Deferred acquisition and offering costs 3,727 0
Other Assets 0 (3,739)
Net cash flows from investing activities (520,009) (80,218)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of preferred stock,
net of offering costs 899,130 0
Proceeds from issuance of common stock
and warrants 261,845 1,040,337
Proceeds from lending institutions 40,701 0
Net cash flows from financing activities 1,201,676 1,040,337
NET CHANGE IN CASH AND EQUIVALENTS (630,110) 151,313
CASH AND EQUIVALENTS, BEGINNING OF YEAR 2,415,256 724,415
CASH AND EQUIVALENTS, END OF PERIOD $1,785,146 875,728
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $1,592 $0
Income taxes paid $6,556 $0
NONCASH FINANCING ACTIVITIES:
Common stock to be issued to Intersep
Stockholders $2,431,485 $0
See accompanying notes to consolidated financial statements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Note 1. Nature of the Business and Basis of the Presentation:
Nature of the Report: The accompanying consolidated financial statements
include the accounts of DiaSys Corporation and DiaSys Europe, Ltd. (formerly
Intersep Ltd) (the Company) from its date of acquisition by DiaSys on
September 30, 2000. The balance sheet for the end of the preceding fiscal year
has been derived from the Company's last audited balance sheet contained in
the Company's Form 10-KSB and is provided for comparative purposes. All
other financial statements are unaudited. In the opinion of management, all
adjustments, which include only normal recurring adjustments
necessary to fairly
present the financial position, results of operations and changes in
cash flows for
all periods present, have been made. The results of operations for interim
periods are not necessarily indicative of the operating results for the
full year.
Footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted in
accordance with the published rules and regulations of the Securities and
Exchange Commission. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company' Form 10-KSB for the most recent fiscal year.
Certain statements contained herein are not based on historical facts, but are
forward looking statements that are based upon numerous assumptions about
future conditions that could prove not to be accurate. Actual events,
transactions and results may materially differ from the anticipated event,
transactions or results described in such statements. The Company's ability to
consummate such transactions and achieve such events or results is subject to
certain risks and uncertainties. Such risks and uncertainties include,
but are not
limited to, the existence of demand for and acceptance of the Company's
products and services, regulatory approvals and developments, economic
conditions, the impact of competition and pricing, results of financing
efforts and
other factors affecting the Company's business that are beyond the Company's
control. The Company undertakes no obligation and does not intend to update,
revise or otherwise publicly release the result of any revisions to these
forward-
looking statements that may be made to reflect future events or circumstances.
Note 2. Intersep Ltd. Acquisition:
Effective September 30, 2000, the Company acquired all of the capital
stock of Intersep
Ltd., a United Kingdom based manufacturer of consumable laboratory products,
reagents and test kits. The price for the acquisition was $500,000 paid at
closing plus a
commitment to issue a number of DiaSys common shares determined by multiplying
Intersep's EBITDA for the year ended December 31, 2000 by 7.5x, less the sum of
$500,000 and the amount of Intersep's indebtedness as of December 31, 2000
and by
dividing the result by the $8.1842 per share. Based on this calculation, the
Company
has issued 297,131 of its common shares to the shareholders of Intersep,
Ltd. on May 7,
2001 as approved by the Securities and Exchange Commission. Accordingly, the
Company's financial report for the period ended March 31, 2001 includes
the issuance
of 297,131 such shares of common stock. The approximate $2,431,500
of additional
purchase price has been allocated to patents. Assuming other conditions
are met,
additional consideration may be paid by DiaSys in DiaSys common stock based on
Intersep's pre-tax profits for the years ending December 31, 2001, 2002,
and 2003.
The acquisition has been accounted for using the purchase method of
accounting, and, therefore, the purchase price has been allocated to the assets
purchased and the liabilities assumed. The Company is in the process of
valuing certain intellectual property acquired in the Intersep purchase. It is
expected that patents and unique intellectual property owned by Intersep will
have an estimated fair market value in excess of $5,000,000.
Given effect of the Intersep acquisition, revenues on a pro forma basis for the
quarter ending March 31, 2000 would have been $496,676, net loss would have
been $(250,149) or $(0.04) per share for the same period last year (after
considering the stock split). For the nine months ended March 31, 2000,
revenues would have been $1,289,064. Net Loss would have been $(657,408) or
$(.11) per share.
The unaudited pro forma information is provided for informational
purposes only.
This information is based on historical information and is not necessarily
indicative of what the actual consolidated results of operations
might have been
if the acquisition had been effective at the beginning of the period, nor is it
indicative of future results of operations of the combined entities.
PART II
OTHER INFORMATION
Note 1. Legal Proceedings:
As previously disclosed, the Company was awarded damages of $335,000 in a
certain arbitration action against Intelligent Medical Imaging, Inc.
(NASD: IMII
OB). Subsequent to the award, IMI filed for bankruptcy protection against the
Company and numerous other creditors. The Company has submitted its claim
to the bankruptcy court and has been approved as one of IMI's unsecured
creditors. In light of IMI's insolvency, the Company has elected not to
recognize
a receivable in this matter, and to recognize any payment as and when
received.
Note 2. Stock Options
The Company accounts for stock option grants using the intrinsic value based
method prescribed by APB Opinion No. 25. Since the exercise price equaled or
exceeded the estimated fair value of the underlying shares at the date
of grant,
no compensation was recognized at March 31, 2001.
Had compensation cost been based upon the fair value of the option on the date
of grant, as prescribed by SFAS No. 123, the Company's pro forma net loss and
net loss per share would have been approximately $(1,387,000) $(0.21) per
share at March 31, 2001, using the Black-Scholes option pricing model.
FINANCIAL CONDITION:
Liquidity and Capital Resources:
As of March 31, 2001, the Company had cash and equivalents of $1,785,146
compared to $2,415,256 at June 30, 2000. The decrease in cash and
equivalents was mainly due to the acquisition of Intersep Ltd and extended
payment terms on certain accounts receivable balances.
Based on cash and continuing operations, management believes that it has
sufficient funds and resources on hand to discharge its obligations as they
become due for at least the next 12 months.
RESULTS OF OPERATIONS
Net Revenue:
Net revenue for the three-month period ended March 31, 2001 increased
$197,890 or 84% from $234,236 to $432,126 compared to the same period of
the prior year. Net revenue for the nine-month period ended March 31, 2001,
increased from $762,215 to $1,391,169, or 83%, over the same period of the
prior year. The increase in Net Revenue for the three and nine month periods
was due primarily to continued application of the Company's strategic growth
plan.
Gross Profit and Gross Profit Margins:
Gross profit for the three-month period ended March 31, 2001 increased 74%
from $154,875 to $269,372. Gross profit for the nine-month period ended
March 31, 2001 increased 58% from $553,624 to $875,334. The increase in
gross profit was due primarily to the continued application of the Company's
strategic growth plan and continued application of sound manufacturing and
purchasing practices.
Gross profit margins for the three-month period ended March 31, 2001
decreased from 66.1% to 62.3% over the comparable period of last year. Gross
profit margins for the nine-month period decreased from 72.6% to 62.9%, also
over the comparable period. The decrease in gross profit was primarily due to
increased sales of certain consumable items having lower profit margins.
Selling General And Administrative (SG&A):
For the three-month period ended March 31, 2001, SG&A increased $264,994 or
75% from $354,184 to $619,178 over the prior comparable period. SG&A for
the nine-month period ended March 31, 2001 increased $575,587 or 63% from
$915,227 to $1,490,814 over the comparable period of the prior year. The
increase in SG&A was due primarily to the acquisition of Intersep plus certain
NASDAQ and AMEX listing fees; increased legal, accounting, and acquisition-
related travel expenses; additional personnel in Finance, increase in the bad
debt reserve and increased sales-related travel, and one-time costs associated
with the relocation of the Company's headquarters office to larger facilities.
Research And Development (R&D):
R&D for the three-month period ended March 31, 2001 increased
$47,616 or 65% from $73,418 to $121,034 over the comparable period.
R&D for the nine-month period ended March 31, 2001 increased $87,140
or 37% from $237,756 to $324,896 over the comparable prior year period.
The increase in R&D was due to development of one new workstation
product, several product enhancements and the reclassification of R&D
expenses for the DiaSys Europe subsidiary.
Net (Loss):
For the three-month period ended March 31, 2001, Net Loss
increased 67% from $271,852 to $452,817 over the same three-month
period in 2000. Net Loss for the nine-month period ended March 31, 2001
increased 56% from $582,546 to $906,415 over the comparable nine-month
period of the prior year. The increase in Net Loss was mainly attributable to
increased General and Administrative costs as described above.
PART II OTHER INFORMATION
Item 1. Other Information:
On February 7, 2000, Registrant entered into an Agreement pursuant to which
it agreed to sell up to 4,000 Series "A" Convertible Preferred Shares
(the "Preferred")
and accompanying 5 year warrants (the "Warrants") to purchase common shares, to
two unaffiliated accredited investors, B.H. Capital Investments, L.P.
and Excalibur
Limited Partnership, both of Toronto, Ontario, Canada. The terms of
the Preferred
are as provided for in Certificate of Designations filed
with the Secretary of the State of Delaware. The Agreement
provides that the investors will purchase the Preferred and Warrants in three
tranches: the first tranche of $1 million was purchased on February 7th,
2000; the
second tranche of $2 million was purchased on June 28th, 2000; and the final
tranche of $1 million was purchased on November 17, 2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereto duly
authorized.
DiaSys Corporation
Date: May 15, 2001
Todd M. DeMatteo,
President and Chief Executive Officer
Diane J. Sentner
Chief Financial Officer